TIPS to hedge against inflation? Is TIPS worthwhile to have in bond?

[endomd]

While thinking of incorporating TIPS into bond portfolio in future (not right now as I'm still in accumulation phase but maybe 5-10 years from now), I noticed Vanguard TIPS actually lost about 2% of value over past 6 months while inflation rate has gone up. (Although 2% loss is better than 6% loss in VBTLX and even more global stock loss).

Should TIPS be considered important portion of bond in someone's portfolio or is benefit of having TIPS considered minimal?
I'd like to take the approach of holding broad index bond such as VBTLX, and balancing portfolio annually, but there are so many different bonds (TIPS, municipal, corporate, treasury) and I'm not sure if holding multiple bonds in portfolio is better than having broad index bond.

Thank you!

[bovie]

While thinking of incorporating TIPS into bond portfolio in future (not right now as I'm still in accumulation phase but maybe 5-10 years from now), I noticed Vanguard TIPS actually lost about 2% of value over past 6 months while inflation rate has gone up. (Although 2% loss is better than 6% loss in VBTLX and even more global stock loss).

Should TIPS be considered important portion of bond in someone's portfolio or is benefit of having TIPS considered minimal?
I'd like to take the approach of holding broad index bond such as VBTLX, and balancing portfolio annually, but there are so many different bonds (TIPS, municipal, corporate, treasury) and I'm not sure if holding multiple bonds in portfolio is better than having broad index bond.

Thank you!

Depends who you ask. I pass on TIPS.

Technically I pass on all bonds now in accumulation, but I will never buy TIPS.

VBTLX would seem sufficient for bond allocation—nice and simple, holds pretty much everything—or VWIUX if you’re looking to go the muni route.

[endomd]

Depends who you ask. I pass on TIPS.

Technically I pass on all bonds now in accumulation, but I will never buy TIPS.

VBTLX would seem sufficient for bond allocation—nice and simple, holds pretty much everything—or VWIUX if you’re looking to go the muni route.

Thank you much for your kind response.
It appears Dr. Dahle has a new post on this today (https://www.whitecoatinvestor.com/52...and-403bs-276/)

Based on reading this, appears TIPS is better than usual bond given higher yield after adjustment for inflation in general.

[bovie]

Thank you much for your kind response.
It appears Dr. Dahle has a new post on this today (https://www.whitecoatinvestor.com/52...and-403bs-276/)

Based on reading this, appears TIPS is better than usual bond given higher yield after adjustment for inflation in general.

Define "better."

TIPS also have >50% higher volatility than US total bond market.

People don't hold bonds for return--that's what equities are for. They want stability, and perhaps some income.

I would caution you to avoid choosing a bond allocation simply based on yield.

[HM7]

I think there's utility in having inflation protection whether in TIPS or I-bonds. Especially as you get closer to retirement, I'm okay with sacrificing a little yield as protection against inflation.

This article in Morningstar does a good job comparing the long-term performance of various Fixed Income assets.

https://www.morningstar.com/articles/1108848/i-bonds-forever

[triad]

I think there's utility in having inflation protection whether in TIPS or I-bonds. Especially as you get closer to retirement, I'm okay with sacrificing a little yield as protection against inflation.

This article in Morningstar does a good job comparing the long-term performance of various Fixed Income assets.

https://www.morningstar.com/articles/1108848/i-bonds-forever

why do you say you sacrifice yield? TIPS have outperformed nominal treasuries

[triad]

I started getting TIPS just before retirement. I'd recommend TIPS for any early retiree to help protect against unexpected inflation which is a huge risk to nominal bonds

[HM7]

why do you say you sacrifice yield? TIPS have outperformed nominal treasuries

You don't get inflation protection for nothing, you have to pay a little price in lower yield for it. Otherwise, why would the government give you that free lunch?

If you look at forward-looking yields (not prior performance); for similar maturities you will have lower yields for inflation-protected bonds compared to nominal treasuries.
Also, from that morningstar article, short-term treasuries performed better than the I-bond with 0% fixed portion.

[Tangler]

Bought I-bonds. Have yet to buy tips. I own mostly stock index funds. Stocks = my inflation protection.

[triad]

You don't get inflation protection for nothing, you have to pay a little price in lower yield for it. Otherwise, why would the government give you that free lunch?

If you look at forward-looking yields (not prior performance); for similar maturities you will have lower yields for inflation-protected bonds compared to nominal treasuries.
Also, from that morningstar article, short-term treasuries performed better than the I-bond with 0% fixed portion.

thats not an opinion. TIPS have had a higher return than nominal treasuries. the government doesn't give it to us for free, the prices are determined at auction

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TIPS&allocation1_1=100&asset2=IntermediateTreasury&allocation2_2=100&asset3=TreasuryNotes&allocation3_3=100